Wilson's Is Reviewing a Project with an Internal Rate of Return

question 50

Multiple Choice

Wilson's is reviewing a project with an internal rate of return of 13.09 percent and a beta of 1.42.The market risk premium is 8.1 percent,the tax rate is 35 percent,and the risk-free rate is 2.9 percent.The firm's WACC is 12.68 percent.Will the project be accepted if the WACC is used as the discount rate for the project? Should the project be accepted according to the CAPM,and why or why not?

• A)Yes;No,since the CAPM return of 14.40 percent exceeds the IRR.
• B)Yes;Yes,since the project plots above the security market line.
• C)Yes;Yes,since the CAPM of 10.28 percent is less than the IRR.
• D)No;Yes,since the project plots above the security market line.
• E)No;No,since the project plots below the security market line.

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Definitions:

Set Point

A theory suggesting that an individual's body weight, or other physiological markers, are regulated around a specific value or range by the body's homeostatic mechanisms.

Body Mass Index

A measure of body fat based on height and weight that applies to adult men and women.

Blood Glucose Level

A measurement that indicates the amount of sugar present in the blood at any given time.

Ghrelin Production

The process of producing ghrelin, a hormone that stimulates appetite, promotes fat storage, and is involved in regulating energy balance.